The Economic Value of Education

In the face of ever-rising rising tuition and scarce or confusing quality metrics, many people are understandably frustrated with universities and community colleges. Meanwhile, the Great Recession has delayed or diverted the ambitions of many young college graduates.

Unfortunately, some scholars have piled on to these concerns with unwarranted suggestions that there is little to no private or public economic benefit from obtaining a college degree.

In a commentary in the Chronicle of Higher Education, Arthur M. Cohen, Carrie B. Kisker, and Florence B. Brawer argue that the vibrancy and productivity of the economy is unrelated to higher education. At the personal level, they imply that the likelihood of finding a job is largely unrelated to education. At the aggregate level, they deny that education benefits the economy, relegating its advantages to social and culture benefits. Therefore, they conclude, efforts to increase educational attainment should be dismissed as selfish gestures by parties that stand to gain financially—like universities and philanthropic charities dedicated to education.

These claims are contradicted by reality. The data are very clear that the sacrifices made by millions of taxpayers, parents, and individuals to invest in the education of others or themselves are economically worthwhile, as my Brookings colleagues have pointed out.

First of all, it is indisputable that workers with more education typically earn significantly higher wages and are far more likely to be employed than workers who have no post-secondary education. For example, the latest figures from the Bureau of Labor Statistics show that workers with only a high school education are twice as likely to be unemployed as those with at least a bachelor’s degree. Among the employed, the median college educated worker earns 84 percent more than the median worker with only a high school education. Even those with just some college and no degree or an associate’s degree earn 16 percent more. College educated workers are also much more likely to be in the labor force.

A large body of economic literature shows that these differences are not the result of a special group of very smart people getting educated. An identical twin raised in the same family but with more education earns significantly more than his or her less educated sibling. This and other evidence prove that education has an important causal effect on earnings for all groups of people.

From a longer-term perspective, the absolute and relative wage benefits of post-secondary education have steadily increased since 1980, as economists have long noted. Almost every year breaks a new record in the earning differences between high school and college educated workers. As a leading labor economist, Philip Orepoulos, and his co-author recently summarized:

“For the past three decades, technological change has led to increased growth in the demand for skilled workers, and because the supply of college educated workers has not increased at the same rate, employers have bid up the wages of college graduates causing the rise in the college earnings premium.”

To see how this plays out, consider the manufacturing sector. Everyone knows the number of manufacturing jobs in the United States has plummeted in recent decades. What is less well known is that the losses are concentrated among less-than-college-educated workers. From 1980 to 2013, workers with no college have seen a net loss of 9.3 million jobs in the manufacturing sector. But workers with at least some college have seen a net increase of 2.5 million manufacturing jobs.

How did this happen? As millions of non-college educated workers from post-communist China and other undeveloped countries moved out of subsistence farming into higher paying and more productive routine factory work, it no longer made sense to employ low-skilled American workers to do these tasks. Thus, the U.S. manufacturing sector has rapidly up-skilled both in terms of education and the skill level of occupations. These and other trends create opportunities for blue collar workers in skilled STEM fields but most need at least some post-secondary training. As scholars have found, this sort of technician training, typically found at community colleges, generates skills that make factories more efficient and valuable innovations more likely.

Those who most directly impact economic growth—inventors and entrepreneurs—also tend to be highly educated. A Georgia Tech survey of patent inventors found that 92 percent had a bachelor’s degree, almost exclusively in STEM (Science, Technology, Engineering, and Mathematics) subjects. Likewise, almost all of the founders (92 percent) of the high-tech companies that have powered GDP in recent decades are college educated, especially in STEM fields. Thus, it is no surprise that macroeconomic research finds very large gains from education on economic growth at both the international and regional levels, as the research of Harvard’s Ed Glaeser and many others has shown.

In their efforts to boost American education, the president, civic and political leaders of various partisan persuasions, philanthropic and religious groups, educators, parents, and many others are providing a great service to this country. They deserve our respect and our engagement to insure that they are focusing their efforts on the interventions that will most advance their goals.